US STEEL PRICES OUTPERFORM MEPS WORLD INDEX

Nowhere during the recent boom in steel prices, have values soared faster than in the USA. From being roughly in line with global figures for most of the last 12/15 months, US hot rolled prices have skyrocketed in the last few months to levels never seen in the previous twenty five years.

All regions have been affected by the shortage of ferrous raw materials caused by China’s voracious demand. Our World steel prices reflect this. The MEPS World Hot Rolled Coil Index has gone up from 72.7 in March 2002 to 134.6 this month, while our World Cold Rolled Coil Index has risen from 66.9 to 118.6 over the same period.

North American producers of strip mill products have succeeded in pushing through large basis price increases as well as sizeable raw material surcharges. US prices are now massively higher than those in the rest of the World. Our regular monthly survey of comparative prices (in $US per tonne) shows that our low US price for the benchmark hot rolled coil this month is $US605 per tonne, compared with figures of $US431 in Japan and $US443 on average in the EU. The US hot rolled coil low value has risen from $US360 in December 2003 - a surge of almost 70 percent since the end of last year. Europe and Japan, by contrast, have seen much smaller increases in price - of the order of 25 percent since December.

The main reason for the disparity is the raw material surcharge that US buyers have been willing to pay in order to secure material. Strip product surcharges stand at $US100-110 per tonne this month, and will rise by $US25 in April. Equivalent surcharges do not exist in Europe or Japan. US mini-mills say their surcharge policy has succeeded in covering increased scrap costs, but buyers are complaining. Some distributors cannot get material from any domestic mill. Construction firms are delaying building projects because of steel shortages. One large structural steel fabricator entered Chapter 11 bankruptcy earlier this month, blaming losses resulting from fixed-price contracts that did not allow it to pass on the higher cost of steel.

It is clear that service centres and end-users have been buying more than they need for their immediate requirements, because they fear the price will go up again - or the mills may not be accepting any orders at all. It is not sustainable for US strip prices to remain higher than those in the rest of the world by $US100 per tonne or more for any lengthy period of time. The US market is already sucking in increased amounts of imports, and it will remain attractive so long as prices are so much higher than elsewhere.

With the “Section 201” import tariffs no longer in effect, there are fewer barriers to imports. If the current pause in Chinese buying lasts much longer, sizeable volumes of steel could be redirected to the USA which is paying the highest prices in the world at present. Perhaps we should stand by for a new round of anti-dumping cases?

Source: MEPS - International Steel Review